Decomposition of the Shrinking Middle-class and Directional Mobility in Finland 1995–2012

Abstract

This paper investigates the middle-class decline in Finland from 1995 to 2012. The purpose is to examine how changes in the probabilities of belonging to the middle class in different socioeconomic groups have contributed to the middle-class decline while taking into account changes in the relative sizes of the groups. A decomposition analysis indicates that most of the decline has been due to the probability effect, especially among the least-educated population. Changes in age demographics and educational structure have contributed to the decline. The results of the decomposition are supported by mobility results, which indicate that individuals with a tertiary (no secondary) degree have been subject to upward (downward) mobility over the observed time period. In conclusion, the middle-class decline and polarization in Finland are asymmetrically reflected in different education groups. The highly educated have climbed up the income distribution, while the least educated have fallen.